Private report suggests Citi Bike could be a going concern

At the end of 2013, the company that runs the program and is now proposing a dramatic rate increase, prepared an internal analysis for the Bloomberg administration detailing the bike system’s financial and operational challenges from April 2012, when Citi Bike got equipment, hired employees and was scheduled to launch, through September 2013, by which point Citi Bike's 6,000 bikes and 330 stations had been operational for four months.

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The analysis, acquired by Capital, suggests the following, now that the system's early software and start-up challenges have largely abated: If the bike system’s troubled operator (Alta Bicycle Share, which runs the city program through its subsidiary NYC Bike Share) and its troubled equipment supplier (Bixi) can find new, more competent owners or investors, the system could become a sustainable or even profitable operation, and could maybe even subsist at its current size without public funding.

That runs counter to the narrative that’s sprung up in the aftermath of reports that the popular system is in severe financial distress, which it is.

The analysis acquired by Capital found that in those 18 months, start-up and operating costs exceeded expectations by about $9 million. The report attributed more than two thirds of that to disastrous software problems and Hurricane Sandy, which delayed the system's rollout and its revenue generation, even as Citi Bike was paying to store equipment and hire staff.

Hurricane Sandy is presumed here to be a nonrecurring event.

And the worst of the software flaws have largely been fixed, according to a knowledgeable source.

The rest of the cost overruns were due to "operating costs," including the rebalancing of bikes from stations where users had deposited them to stations where they were demanding them. Without the start-up costs and the hurricane, neither of which are likely to recur to such devastating effect, as far as Citi Bike is concerned, the program would have suffered cost overruns of $2.6 million.

At the same time, there is significant upside in the analysis: While "casual sales," including tourist-friendly day passes, didn’t meet expectations by some $1.1 million, annual sales so dramatically exceeded expectations (by $4.5 million), that overall sales brought in $3.4 million more than expected.

Take out the nonrecurring costs and net the $2.6 million in overruns with the sales surplus, and you would have ended up with an overall surplus of about $800,000.

”It just shows that the first thing Alta needs to do is get its house in order, because this shows that Citi Bike isn’t a black hole from a financial perspective,” said Noah Budnick, the deputy executive director of Transportation Alternatives.

Put another way, the system at its current size could be sustainable in the long run.

But any further expansion of significant size would require a sizeable financial outlay.

A phase one expansion that would bring 1,000 bikes and 90 stations to Long Island City and Greenpoint would cost $4.2 million.

The second expansion, described as "Phase 2" in the report, would cost $15.2 million in equipment costs, and bring 3,000 bikes and 180 stations to another slice of western Queens, parts of the Upper East and Upper West sides and neighborhoods around the northern end of Prospect Park.

Phase 2 would bring the total number of Citi Bikes to 10,000, the number of bikes that were originally supposed to launch in April 2012, before Hurricane Sandy swamped a Brooklyn warehouse where much of the system's equipment was stored.

The third phase of expansion would cost $76.2 million, and bring 15,000 bikes and 939 stations to all of Upper Manhattan, the south Bronx, and parts of northern Queens and central Brooklyn.

None of those expansion phases seems likely to happen without additional private sponsorship or city investment, the latter being something Mayor Bill de Blasio has explicitly ruled out.

Asked for comment, transporation department spokesman Scott Gastel said, in a statement, "We remain committed to working with the operator to address its financial and issues to ensure the needs of its ridership are met."